Generic Top-Level Domains: The Gold Rush is On

By Evan Jensen

The biggest gold rush since the creation of the internet is in full swing. The creation of new top-level domains is the largest expansion of the internet ever, opening up a new world of opportunity to stake a claim to newly available names that will be immensely valuable in the future. The land grab for virtual real estate is back, and this time it is millions of times larger.

On June 20, 2011, ICANN’s board decided to remove nearly all the restrictions on generic top-level domains (gTLDs).[1] This decision would eventually lead to the creation of ICANN’s New Generic Top Level Domain program to auction off gTLDs. The program allows companies and institutions to purchase any desired string of characters to act as a top-level domain, and to sell domain names beneath that gTLD to anyone who wants one.

Domain Names: The Gold Rush in the ‘90s

Domain names are the real estate of the internet.

In the early days of the internet, some enterprising individuals realized that having a strong domain name was extremely valuable for attracting and keeping customers online. A company’s domain name is both the sign hanging outside of its store, and also the directions for how to get there.

What followed was a truly insane domain name gold rush. Speculators bought everything in sight. There was no domain too obscure, no random series of letters that wasn’t worth acquiring for peanuts. The few that would resell for tens of thousands, even millions of dollars, would justify millions of “dogs” purchased for nothing. And in the meantime even little-known domains might yield a little ad revenue, which when multiplied by millions of domains adds up to a significant profit.

Major-league domain name speculators like Kevin Ham[2] and Mike Mann[3] bought millions of domains at blistering speeds, buying domains in bulk for nothing, and reselling for tens of thousands of dollars soon after. Mann recounts that in 1998 that he bought “menus.com” for $70, and the next day he received an offer for $25,000, and the day after, $50,000.[4] Seldom in history has anyone ever made such ridiculous profits so easily and so quickly. Before long, almost every possible domain was owned by someone, either a person or company using the domain name to host a website, or someone looking to turn a quick profit by selling the domain.

Many domain names are worth more than actual land. In 2007 the domain name “VacationRentals.com” sold for $35 million. While that sounds like a large number, consider domain names like “google.com” or “amazon.com” and how much such a domain name might be worth.

To own a domain name is to own a series of letters. On the internet that domain name is unique, giving its owner an incredible amount of power by strategically controlling certain words. For example, the buyer of “VacationRentals.com” primarily purchased the domain to keep it out of the hands of Expedia.[5]

The strategy of acquiring domain names has had a huge impact on web-based companies. Many of the unusually named services on the web selected their product names to get an inexpensive domain name. Sites like “flickr.com,” “reddit.com” and “del.icio.us” selected a unique and inexpensive name knowing that common words would be expensive. The websites these companies built on their domains then drew people to the domain, and thus the traffic and name recognition made those domains valuable despite their humble beginnings.

But the entire mad gold rush of the original internet took place on only a handful of top-level domains; primarily the “.com” TLD that gave the “dot-com bubble” its name.

ICANN’s new gTLD program will enable any string to be used, not just “.com” or “.net.” And that means every name is now up for grabs again. Only this time there isn’t just one of each- it is possible to obtain a registration for every name under every possible gTLD.

ICANN began accepting applications for new gTLDs on January 12, 2012. The gold rush was on.

 

The Contest

In order to be granted a gTLD an applicant must pass a lengthy and complex examination, overcome any opposition to the domain, and outbid any competitors. ICANN opened the first application filing window on January 12, 2012.

The first application filing window closed on May 30, 2012, and no new applications can be filed until the next window opens. ICANN is still handling all the applications from the first round of applications, so the next gTLD application window has not yet been scheduled. However, ICANN has indicated that it will begin the next application filing window “as expeditiously as possible.”[6]

ICANN performs an extensive review process for each gTLD application. The entire review process takes between 9 and 20 months.[7] The applicant must rectify any problems with the application, overcome any objections to the gTLD applied for, and pay all the associated fees. The application fee alone is $185,000, not counting lawyers, domain name maintenance, and other expenses. And the annual cost of keeping each gTLD is $25,000 per year.

Regardless of the high price, ICANN has no shortage of interest. On June 13, 2012, ICANN revealed the applications it had received. Over the previous six months ICANN had received a whopping 1,930 applications for new gTLDs.[8]

Because of the extremely high price to play, the primary competitors for gTLDs so far have been large companies. Unlike existing lower-level domain names, purchasing generic top-level domains en masse is prohibitively expensive. Intelligent and strategic name selection is critical.

Still, for any company with the kind of capital necessary to participate the incredible value of a gTLD makes purchasing an obvious choice. The tremendous commercial value of a gTLD like .BOOK or .FOOD is obvious.

Amazon, for example, has applied for the .BOOK domain, and assuming it is granted then every URL ending in .BOOK will belong to Amazon. Consumers looking to purchase books are likely to end up purchasing from a .BOOK website. By purchasing the .BOOK gTLD, Amazon would own all the .BOOK domains, and any company that wants a .BOOK domain will have to pay Amazon for the privilege. Authors might want to host a domain that looks like “title.book” or perhaps bookstores will buy domain names from Amazon to obtain “store.book” domains. Regardless of how people end up using the gTLD, its owner holds all the cards.

 

Bidding

Even after clearing the many bureaucratic hurdles of obtaining a gTLD, an applicant still must deal with other applicants who want the same gTLD, or a highly similar one. The competition over gTLDs so far has been fierce. Auctions for lucrative domains are likely to be hotly contested, and if it goes to a final auction then the winning bid is likely to be huge.

The schedule of upcoming auctions in 2014 is packed with hot-button domain names. Auction #4, beginning on September 17, 2014, contains .PLAY, .BUY, .BOOK, .SITE, .ONLINE, .TECH, .FILM, and others.[9] Auction #5, beginning on October 24, contains .AUTO, .BABY, .LAW, .LEGAL, .PET, .REALTY, and .SCHOOL, among others. As of June 30, 2014, there are 10 auctions resolved or scheduled, each with a large block of significant gTLDs to auction off. Each gTLD will cost hundreds of thousands of dollars, and there are millions of gTLDs up for grabs, with about a hundred being auctioned off in 2014 alone.

Auctions are conducted over the internet using an “ascending clock” auction process. The auctioneer sets start-round and end-round prices, defining a bidding range. During each round, each bidder may either “continue” (bid the end-round price) or “exit” by making a final bid at less than the end-round price.[10] If any bidder continued then any exiting bidders are eliminated, and the next auction round begins. Each round the auctioneer increases the bid range until enough applicants exit to conclude the auction. Prevailing applicants who remained until the end of the auction will then pay the finalized price and proceed to delegation of their new gTLD.

The first ICANN gTLD Last Resort Auction concluded on June 4, for the string “信息” .[11] Beijing Tele-info Network acquired the gTLD with a final bid of $600,000.[12] This is a strong sign that the bidding war for gTLDs is going to be extremely intense. However, not every conflict leads to an ICANN auction. ICANN encourages resolving conflicts between applicants privately, such as buy-outs, partnerships, or using a private auction mediator.

Private auction processes have the benefit of being quicker and less expensive, particularly for the losing parties. In an ICANN auction, the price the buyer pays goes entirely to ICANN, and every bidder loses their $185,000 application fee as well as any other time and money spent on the application.[13] However, by withdrawing its application early, an applicant can receive part of its application fee back.[14] As a result, by resolving the dispute privately, such as by a private auction, the losing parties can withdraw from the ICANN application and receive part of their application fee, as well as a share of the money spent by the winner of the private auction. The withdrawal of all the opponents leaves the winner of the private auction the sole applicant for the gTLD, and no ICANN Auction of Last Resort is necessary.

Several gTLD auction companies have appeared, including Innovative Auctions, Right of the Dot, and Sedo, which will operate an auction between applicants seeking to claim the same or similar gTLDs. All applicants contesting a particular gTLD must agree to participate in order for a private auction to proceed; otherwise the contention will be resolved by ICANN’s Last Resort Auction.

 

Early Strategies

The gold rush for gTLDs is a game with extremely high stakes. Nobody knows the value of such a large chunk of internet real estate. But the big players seem to be assuming that $185,000 is nothing compared to the power of controlling a top-level domain. Imagine if a company in the 1990’s had been able to take ownership of .COM. The potential value of a gTLD is astronomical.

Google applied for 101 gTLDs, including .ANDROID, .APP, .BLOG, .CLOUD, .GMAIL, .MAP, .MEME, .PLAY, and .SEARCH, among many others. Google seems to be applying for every top-level domain that corresponds to one of its many products, either directly or indirectly, with a few generic names as well. Even for a company as large as Google, this is a big move. The application fees alone are nearly $19 million, not counting any other fees or expenses, or the cost of winning or settling in advance of any auctions. But the possible gains are immense. Google could use its gTLDs to provide an endless number of domains of the type “username.gmail” or “username.youtube” among others, giving each user his or her own set of domain names across Google’s services.[15]

Amazon applied for 77 gTLDs, including .BOOK, .BUY, .FIRE, .GAME, .MOBILE, .MOVIE, .SONG, .SHOP, .STORE, .PAY, .WOW, and many others.[16] Amazon has applied for the largest number of “closed generic” domains, or generic names for products like ‘book.’ These domains are generic names for products, such as “book” which Amazon reserved exclusively for its own use, making it “closed.” Amazon’s strategy seems to be to cast a wide net over a lot of different product categories that are sold through its online store.

Some companies are adopting a much more conservative gTLD acquisition strategy. For example, Apple applied for exactly one gTLD; naturally, .APPLE. Buying its mark as a gTLD protects Apple from anyone else obtaining the .APPLE gTLD, and enables Apple to have as many domain names as it wants using its .APPLE top-level domain, such as “store.apple” or “support.apple” or any other names Apple wants. In addition, if Apple chooses it can also sell domain names beneath its .APPLE top-level domain, perhaps to iOS app developers.

Other companies have a much more aggressive strategy of attempting to buy top-level domains for profit. Interestingly, the company with the most applications is a previously unknown company called Donuts, Inc., with 307 gTLD applications.[17] That’s three times more than even Google.

Donuts, Inc. is a company founded in 2010 with the express purpose of buying gTLDs and selling lower-level domains beneath those top-level domains. Donuts has been so aggressive in purchasing gTLDs that it is somewhat alarming. Donuts appears to be a sophisticated effort at gTLD speculation, registering hundreds of gTLDs in many different areas including .BIKE, .CLOTHING, .HOLDINGS, .LAW, .PLUMBING, .SINGLES, and .VENTURES, and over 300 others.[18] Donuts’ gTLDs vary widely, apparently to deliver as much variety as possible to individuals and businesses who want to purchase a domain name.

Donuts announced that it will sell domain name registrations to internet users. In the company’s own words, “Donuts securely operates the largest number of the Internet’s top level domain names and provides varied and relevant online identities, in multiple languages and character sets, to businesses, individuals, and organizations worldwide.” Donuts issued a press release on June 11, 2014, stating that Donuts has spent $50 million on gTLD auctions so far,[19] and Donuts has successfully obtained over 160 new gTLDs, with more on the way.[20]

Donuts owns more gTLDs than anyone else, and is in good position to be the world’s largest provider of new domain names.

 

Evolving Rules

ICANN has been changing their application process and also the rules for which gTLDs can be granted in response to various applications as well as Government Advisory Committee notices.

One of the biggest rule changes has been a prohibition on single-registrant business models of generic word-strings, or “closed generic” domains. In order to sign a registry agreement for a gTLD, an applicant must agree to certain Public Interest Commitments, including the following two rules:

  1. Registry Operator will operate the TLD in a transparent manner consistent with general principles of openness and non-discrimination by establishing, publishing, and adhering to clear registration policies.
  2. Registry Operator of a “Generic String” TLD may not impose eligibility criteria for registering names in the TLD that limit registrations exclusively to a single person or entity and/or that person’s or entity’s “Affiliates” (as defined in Section 2.9(c) of the Registry Agreement). “Generic String” means a string consisting of a word or term that denominates or describes a general class of goods, services, groups, organizations or things, as opposed to distinguishing a specific brand of goods, services, groups, organizations, or things from those of others.[21]

The effect of the above rules is that an owner of a “Generic String” gTLD may not retain the exclusive use of that domain. For example, if Amazon were the owner of .BOOK, then Amazon would be prohibited from restricting registrations of .BOOK domains to just itself and its affiliates. Amazon will have to offer domains within that gTLD to others on a transparent and non-discriminatory basis, at least in theory.

However these rules have more holes than Swiss cheese, and the resulting issues will have to be worked out. For example, would .CHROME be generic for Google? What about for metallurgical companies? What if a gTLD owner adopts a policy that is not discriminatory on its surface, but which has the effect of discriminating to its commercial benefit? What if a gTLD owner requires cross-licensing? Or even just requires a high flat rate that smaller competitors will simply be unable to pay?

Ownership of a gTLD is incredibly powerful. ICANN is changing its policies right now to adapt to the changing environment of gTLD applications and usage. It remains to be seen how gTLDs will be regulated, and whether the rules to prevent abuse by gTLD owners will be effective.

 

Conclusion

The new era of arbitrary gTLDs has arrived, unleashing a gold rush to claim the most valuable new internet real estate. The largest expansion of the internet since its creation is underway. Major companies are staking their claims on gTLDs, either to use with their products or in the hope that there will be gold underneath in the future. Nobody knows what domains will eventually be the most lucrative, but there will definitely be aggressive speculators and cybersquatters trying to capitalize on popular and well-known words and marks for their own profit.

The ground rules of the internet are changing with the introduction of new gTLDs, and the ones who keep abreast of changes are the most likely to be successful.

 

References

[1] About the Program, ICANN, http://newgtlds.icann.org/en/about/program; see also New Internet Name Rule Opens Door to Huge Changes, Voice of America, June 19, 2011, http://www.voanews.com/content/new-internet-name-rule-opens-door-to-huge-changes-124180874/141045.html

[2] Paul Sloan, The man who owns the internet, CNN, May 22, 2007, http://money.cnn.com/magazines/business2/business2_archive/2007/06/01/100050989/index.htm

[3] Paul Sloan, Meet the ‘Mann’ who registered 14,962 domains in 24 hours, CNET, April 21, 2012, http://www.cnet.com/news/meet-the-mann-who-registered-14962-domains-in-24-hours/

[4] Id.

[5] Sharples, Brian. Lessons Learned from Brian Sharples, founder & CEO of HomeAway (NASDAQ: AWAY). Retrieved 1 July 2014. “I mean we bought a website in the United States called VacationRentals.com for 35 million bucks. The only reason we bought it was so Expedia couldn’t have that URL.”

[6] ICANN Reaffirms Commitment to Second Round in New gTLD Program, ICANN, https://www.icann.org/news/announcement-2012-02-09-en

[7] New gTLD Fact Sheet, ICANN, http://archive.icann.org/en/topics/new-gtlds/gtld-facts-31jul11-en.pdf

[8] Michael Berkens, New gTLDs By the Numbers, The Domains, June 13, 2012, http://www.thedomains.com/2012/06/13/new-gtlds-by-the-numbers-1930-apps-751-apps-in-conflict-max-number-of-new-gtlds-1409/

[9] ICANN gTLD Auction Schedule, June 30, 2014, http://newgtlds.icann.org/en/applicants/auctions

[10] ICANN gTLD Auction Rules, May 8, 2014, http://newgtlds.icann.org/en/announcements-and-media/announcement-08may14-en

[11] ICANN gTLD Auction Schedule, June 30, 2014, http://newgtlds.icann.org/en/applicants/auctions

[12] Results of the First New gTLD Auction, ICANN Announcements, http://newgtlds.icann.org/en/announcements-and-media/announcement-3-04jun14-en

[13] Ray King, Private vs ICANN Auction of Last Resort, CircleID, Jan. 2, 2013, http://www.circleid.com/posts/20130102_private_vs_icann_auction_of_last_resort/

[14] Id.

[15] Google to “aggressively” launch .brand gTLDs, World Preview, August 26, 2013, http://www.worldipreview.com/news/google-to-aggressively-launch-brand-gtlds

[16] Michael Berkens, Google Applies for 101 new gTLDs; Amazon 77; Microsoft 11; Apple 1, The Domains, June 13, 2012, http://www.thedomains.com/2012/06/13/google-applies-for-101-new-gtlds-amazon-77-microsoft-11-apple-1/

[17] Bill Brenner, Should we worry about Donuts, Inc.’s push for new domain names? CS Online, Sept. 25, 2012, http://www.csoonline.com/article/2135294/data-protection/should-we-worry-about-donuts-inc–s-push-for-new-domain-names-.html

[18] Donuts, Inc. Press Release, Jan. 28, 2014, http://www.donuts.co/news/donuts-set-to-open-first-new-internet-domains-to-the-public/

[19] Paul Stahura, Donuts by the Numbers, Donuts Press Release, June 11, 2014, http://www.donuts.co/blog/donuts-by-the-numbers-50/

[20] Donuts, Inc. TLD’s, retrieved July 17, 2014, http://www.donuts.co/tlds/

[21] Kevin Murphy, ICANN Freezes “closed generic” gTLD bids, DomainIncite, June 28, 2013, http://domainincite.com/13558-icann-freezes-closed-generic-gtld-bids

Opinions expressed in this article are those of the author and do not necessarily represent the views of Stein IP.

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